[Federal Register Volume 89, Number 95 (Wednesday, May 15, 2024)]
[Notices]
[Pages 42528-42543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-10588]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100085); File No. SR-IEX-2024-08]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Pursuant to 
IEX Rule 15.110 To Amend IEX's Fee Schedule To Adopt a Physical 
Connectivity Fee and Increase Certain Port Fees

May 9, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ 
notice is hereby given that, on May 2, 2024, the Investors Exchange LLC 
(``IEX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the 
Commission a proposed rule change to modify its Fee Schedule, pursuant 
to IEX Rules 15.110(a) and (c), to amend certain connectivity fees. IEX 
will implement the proposed fees beginning on June 1, 2024.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    IEX is proposing to modify its Fee Schedule, pursuant to IEX Rules 
15.110(a) and (c), to add a new fee for physical connections to its 
Primary Data Center,\6\ Disaster Recovery Data Center \7\ and the IEX 
Testing Facility (``ITF'') (``physical connectivity fees''),\8\ and 
increase fees for logical order entry ports (also referred to as 
``Order Entry Ports'') \9\ in excess of five per subscriber (``port 
fees''). IEX has not previously imposed any physical connectivity fees 
but has charged port fees since October 1, 2019.\10\ The Exchange has 
not changed the port fees since they were implemented, but since that 
time, the Exchange has experienced increases in related operational 
expenses including significant upgrades to its trading platform 
infrastructure. As discussed more fully below, the Exchange recently 
calculated its aggregate annual costs of $12,904,100 for providing 
physical

[[Page 42529]]

connectivity and $5,924,000 for providing Order Entry Ports.
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    \6\ All connections to the IEX Primary Data Center (including 
for order entry and market data receipt) are made through IEX's 
point-of-presence (``IEX POP'') in Secaucus, NJ. From the IEX POP, 
messages travel to IEX's Primary Data Center.
    \7\ The Disaster Recovery Data Center, also known as the 
``Secondary Data Center'', is the physical location of IEX's backup 
trading platform. It is located in Chicago, Illinois.
    \8\ The only connections offered to the Primary Data Center are 
10 gigabit (``10G'') physical port connections. The Exchange offers 
both 10G and 1 gigabit (``1G'') physical port connections to the 
ITF, for which it incurs physical connectivity-related costs; 
however, as discussed below, the Exchange is not proposing to charge 
for the connections to the ITF itself.
    \9\ Order Entry Ports are used for sending and receiving order 
messages. Other uses for logical ports, which are not subject to the 
fees proposed herein, include drop copy ports and market data ports.
    \10\ See Securities Exchange Act Release No. 86626 (August 9, 
2019), 84 FR 41793 (August 15, 2019) (SR-IEX-2019-07) (``Port Fee 
Filing'').
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    Increased operational costs include costs related to monitoring and 
analysis of data and performance of the network connections with 
nanosecond granularity and continuous improvements in network 
performance. The costs associated with maintaining and enhancing a 
state-of-the-art network impacts the overall operational costs of the 
Exchange. The Exchange believes that it is appropriate to offset a 
portion of those increased costs by adding fees for physical 
connectivity and increasing fees for Order Entry Ports. Maintaining and 
enhancing the performance of the Exchange's systems is necessary to 
compete with other market venues and meet Users' \11\ expectations when 
trading on the Exchange, as well as to assist the Exchange in complying 
with its Regulation SCI compliance obligations to have levels of 
capacity, integrity, resiliency, availability and security adequate to 
maintain IEX's operational capability and promote the maintenance of 
fair and orderly markets,\12\ and to support a robust trading 
environment for Users.\13\ In addition, the Exchange is in the process 
of implementing significant upgrades to its trading system to enhance 
scalability, network performance and connectivity, thereby enhancing 
the User experience. The associated costs are substantial, including 
costs to purchase new connectivity infrastructure equipment as well as 
other ongoing expenses. The Exchange believes it is necessary and 
appropriate to offset a portion of these costs with fees for physical 
connectivity and increased fees for Order Entry Ports.
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    \11\ See IEX Rule 1.160(qq).
    \12\ 17 CFR 242.1001(a)(1)).
    \13\ Reg SCI Rule 1001(a) requires that IEX establish, maintain, 
and enforce written policies and procedures reasonably designed to 
ensure (among other things) that its Reg SCI systems have levels of 
capacity adequate to maintain IEX's operational capability and 
promote the maintenance of fair and orderly markets.
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    Accordingly, the Exchange now proposes to amend the Fee Schedule to 
begin charging fees for physical connectivity and increase existing 
fees for Order Entry Ports in excess of five per subscriber, in order 
to offset a portion of these increased related costs and expenses, with 
a limited potential return in excess of such costs if actuals differ 
from projections, as set forth below in the Exchange's cost analysis. 
As described below, IEX proposes to charge $4,000 for each physical 
port connection to its Primary Data Center, which fee would also 
include one (1) 10G connection to its Disaster Recovery Center and one 
(1) 10G or 1G connection to its ITF; and to increase the fees it 
charges for Order Entry Ports in excess of five per subscriber from 
$100 to $250 per month. IEX is proposing to continue to provide Order 
Entry Ports at the Disaster Recovery Data Center and ITF, as well as 
drop copy ports and market data ports, free of charge. In each case, as 
detailed below, the proposed fees are less than comparable connectivity 
services offered by other equities exchanges, and significantly less 
than comparable fees charged by legacy exchanges.\14\ The Exchange 
proposes to implement the changes to the Fee Schedule pursuant to this 
proposal on June 1, 2024.
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    \14\ See infra note 53 for a discussion of legacy and non-legacy 
exchanges.
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    As described in previous filings,\15\ in setting its prices for 
market data and connectivity products, IEX has established a general 
framework (``Framework'') that is based on a high level of transparency 
with regard to its costs of providing these services and which is 
designed to set prices at levels that are reasonably related to those 
costs.\16\ As relevant to this filing, the Framework includes the 
following elements:
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    \15\ See Securities Exchange Act Release No. 94630 (April 7, 
2022), 87 FR 21945 (April 13, 2022) (SR-IEX-2022-22) (``IEX Market 
Data Fee Filing''); see also Port Fee Filing, supra note 10.
    \16\ Since the IEX Market Data Fee Filing, which applied this 
Framework to provide a high level of transparency of relevant costs, 
other exchanges have adopted similar fees based on their own 
detailed cost analyses. IEX believes that the information provided 
in this filing meets or exceeds the level of detail and analysis 
contained in those filings. See Securities Exchange Act Release No. 
98584 (September 28, 2023), 88 FR 68736 (October 4, 2023) (SR-PEARL-
2023-51) (``MIAX Connectivity Fee Filing'') (increasing physical and 
logical connectivity fees for MIAX Pearl equities members and non-
members from $1,000/month to $2,500/month for 1G connections; from 
$3,500/month to $8,000/month for 10G connections; and from $0 for 
ports in excess of five but less than 25 per User, and from $300-
$450/month for ports in excess of 25 per User to $450/month); see 
also Securities Exchange Act Release No. No. 95936 (September 27, 
2022), 87 FR 59845 (October 3, 2022) (SR-MEMX-2022-26) (``MEMX 
Connectivity Fees Filing'').
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     Prices are determined based on a comprehensive and 
transparently applied methodology for allocating costs to different 
exchange products.
     Based on this methodology, specific exchange costs are 
reasonably allocated to the products and services for which the 
exchange seeks to charge, including technology and staff directly 
related to the products and services being charged for. In this way, 
IEX prevents ``double-counting'' of costs across more than one set of 
product classes (e.g., market data, physical connectivity, and logical 
connectivity).
     Cost allocation takes account of recent or planned 
enhancements to exchange operations.
     IEX strives to maintain a relatively flat, simple fee 
structure that avoids disproportionate or discriminatory impacts on any 
group of members or market participants.
    The physical connectivity and port fees proposed in this filing 
have been developed consistent with this Framework. In particular, as 
described more fully below, in this rule filing IEX provides a cost 
analysis that includes, among other things, descriptions of how the 
Exchange allocated costs between the Exchange's various cost drivers to 
ensure no cost was double counted, as well as additional detail 
supporting its cost allocation processes.
    IEX is in the process of implementing significant upgrades to its 
technological infrastructure. These upgrades, which include substantial 
enhancements to the speed and efficiency with which the Exchange can 
handle message traffic, as well as enhancements to the various matching 
engines, are thereby projected to provide noticeable performance 
improvements to Users. Additionally, these enhancements are designed to 
allow for greater scalability of the Exchange's System \17\ as overall 
message traffic in the securities markets increases, and IEX seeks to 
capture a greater percentage of equity trading volume.
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    \17\ See IEX Rule 1.160(nn).
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    Consistent with the Framework, in proposing to charge physical 
connectivity and port fees, IEX assessed those fees in relation to its 
own aggregate costs of providing the services, as well as the impact on 
Members \18\ (as well as other Users and subscribers)--both generally 
and in relation to other Members, i.e., so that the fees will not 
create a financial burden on any participant or an undue impact in 
particular on smaller Members and competition among Members in general. 
IEX believes that its approach is consistent with the requirements of 
Section 19(b)(1) under the Act,\19\ and Rule 19b-4 thereunder,\20\ and 
Section 6(b) of the Act,\21\ which requires, among other things, that 
exchange fees be reasonable and equitably allocated,\22\ not designed 
to permit unfair discrimination,\23\ and that they not impose a burden 
on competition not necessary or appropriate in furtherance

[[Page 42530]]

of the purposes of the Act.\24\ This rule change proposal addresses 
those requirements, and the analysis and data in each of the sections 
that follow are designed to clearly and comprehensively show how they 
are met.\25\
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    \18\ See IEX Rule 1.160(s).
    \19\ 15 U.S.C. 78s(b)(1).
    \20\ 17 CFR 240.19b-4.
    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(4).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(8).
    \25\ In 2019, the Commission staff published guidance suggesting 
the types of information that self-regulatory organizations 
(``SROs'') may use to demonstrate that their fee filings comply with 
the standards of the Exchange Act (``Staff Guidance''). While IEX 
understands that the Staff Guidance does not create new legal 
obligations on SROs, IEX has consistently applied the Staff Guidance 
to provide the type and level of transparency in demonstrating 
compliance when seeking to modify fees. See Staff Guidance on SRO 
Rule Filings Relating to Fees (May 21, 2019) available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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    In determining the appropriate fees to charge, IEX considered its 
costs of providing physical and logical connectivity, using a 
methodology that is designed to allocate those costs that are related 
to the establishment, maintenance, support, and enhancements to its 
connectivity products. Based on this allocation, IEX has set the 
proposed fees at levels that are designed to offset a portion of its 
costs, with a limited potential return in excess of such costs if 
actuals differ from projections. Because of the uncertainty of 
forecasting subscribers' decision-making with respect to their IEX 
physical connections and Order Entry Ports it is not possible to make a 
definitive projection of the revenues that will be received.
* * * * *
Connectivity Fee Changes
    IEX offers the ability to physically connect to the Exchange via 
the IEX POP \26\ to its Members, Data Recipients \27\, Service Bureaus 
\28\, and Extranet Providers \29\ (collectively, ``Connectivity 
Subscribers'').\30\ In order to cover a portion of the aggregate costs 
of providing physical connectivity to its Connectivity Subscribers, the 
Exchange proposes to modify its Fee Schedule as described above and 
detailed below. IEX notes that it currently does not charge any fees 
for physical connectivity, and therefore the full cost of providing 
such connectivity is borne by IEX.
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    \26\ Physical connectivity is provided via network switch and 
cabling infrastructure that allows a subscriber to access a logical 
port for send and receive order messages, as well receive market 
data messages.
    \27\ See IEX Rule 11.130(c).
    \28\ See IEX Rule 11.130(d).
    \29\ See IEX Rule 11.130(e).
    \30\ Service Bureaus offer technology-based services to Members 
for a fee, including physical connectivity and Order Entry Ports. 
Extranet Providers offer physical connectivity services to Members 
and Data Recipients.
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    The number of physical connections to IEX's Primary Data Center 
(via the IEX POP) assigned to each Connectivity Subscriber as of 
February 29, 2024, ranged from one (1) to 14, as determined by the 
Connectivity Subscriber based on the scope and scale of its trading 
activity on the Exchange (or other IEX activity, in the case Data 
Recipients, Service Bureaus, and Extranet Providers), including its 
determination of the need for redundant connectivity.\31\ Approximately 
67% of IEX's Members do not maintain a direct physical connection to 
the Exchange's Primary Data Center (though many such Members have 
physical connectivity through a Service Bureau or Extranet Provider) 
and another 22% have either one (1) or two (2) physical connections to 
the Exchange in the Primary Data Center. Presently, only 10% of 
Members, maintain three or more physical connections to the Exchange to 
the Primary Data Center.
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    \31\ 21 Connectivity Subscribers maintain one (1) or two (2) 
physical connections at IEX's Disaster Recovery Center, and 20 
Connectivity Subscribers maintain one (1) or two (2) physical 
connections to the ITF.
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    The Exchange currently does not charge any fees to connect to its 
Primary Data Center, its Disaster Recovery Data Center, or the ITF. In 
order to offset a portion of the costs of providing this physical 
connectivity, plus a limited potential return in excess of such costs 
if actuals differ from projections, the Exchange proposes to charge 
$4,000 per month for each physical connection to its Primary Data 
Center (all of which are 10G connections), which fee would also include 
an option for one (1) 10G connection to its Disaster Recovery Center 
and one (1) 10G or 1G connection to its ITF. This integrated approach 
is designed to simplify the fee structure and encourage physical 
connectivity to the Disaster Recovery Data Center and testing at the 
ITF. As proposed, and discussed more fully below, IEX fees are 
significantly lower than comparable physical connectivity fees of other 
equity exchanges.
Order Entry Ports Fee Changes
    Similar to other exchanges, IEX offers Order Entry Ports, also 
known as ``sessions'', for order entry and receipt of trade execution 
reports and order messages.\32\ Members can also choose to connect to 
IEX indirectly through a session maintained by a third-party Service 
Bureau. Service Bureau sessions may provide access to one or multiple 
Members on a single session.\33\ The number of sessions assigned to 
each Port Subscriber as of February 29, 2024 ranges from one to 279, 
depending on the scope and scale of the User's trading activity on IEX 
(either through a direct connection or through a Service Bureau) as 
determined by the User. For example, by using multiple sessions, 
Members can segregate order flow from different internal desks, 
business lines, or customers. IEX does not impose any minimum or 
maximum requirements for how many Order Entry Ports a Port Subscriber 
can maintain, and it is not proposing to impose any minimum or maximum 
requirements.
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    \32\ Logical connectivity for order entry is provided via 
network switch and cabling infrastructure that delivers order and 
execution messages, as well as server infrastructure that runs 
software processes responsible for validating and formatting such 
messages for either internal or external consumption.
    \33\ Members and Service Bureaus are collectively referred to 
herein as ``Port Subscribers.''
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    IEX currently charges Port Subscribers $100 per port on a monthly 
basis for each Order Entry Port at the Primary Data Center in excess of 
five per Port Subscriber. In order to offset a portion of its costs 
with a limited potential return in excess of such costs if actuals 
differ from projections, the Exchange proposes to increase the fees it 
charges for each such port in excess of five per Port Subscriber from 
$100 per month to $250 per month.\34\ These proposed fees would 
continue not to apply to logical ports used for other purposes, such as 
receiving market data or drop copies,\35\ nor would such ports count 
toward the five free Order Entry Ports calculation. Furthermore, IEX 
would continue not to charge any fee for logical ports used to connect 
to IEX's Disaster Recovery Data Center or ITF, nor would such ports 
count toward the five free Order Entry Ports calculation.\36\
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    \34\ As described in the Statutory Basis section, infra, these 
fees are significantly lower than fees charged by IEX's competitors 
for their sessions.
    \35\ Confirmations of orders and execution reports are 
transmitted by the Exchange over the Order Entry Port that was used 
to enter the order. A ``drop copy'' contains redundant information 
that a Member chooses to have ``dropped'' to another destination 
(e.g., to allow the Member's back office and/or compliance 
department, or another Member--typically the Member's clearing 
broker--to have immediate access to the information for risk 
management and other purposes). Drop copies can only be sent via a 
drop copy port. Drop copy ports cannot be used to enter orders.
    \36\ IEX expects to incur costs of $5,924,000 in 2024 to offer 
Order Entry Ports. At the current fee level, IEX would expect to 
generate fee revenue of $1,389,500 resulting in negative income of 
$4,534,500.
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Conforming Changes to Fee Schedule
     To reflect the fee changes described above, IEX proposes 
to update the Connectivity Fees section of the IEX Fee Schedule as 
follows: In the first row of

[[Page 42531]]

the Connectivity Fees table, after the words ``10G Physical Port'', add 
the words ``Connection to Primary Data Center'' to reflect that the 
$4,000 per port monthly 10G fee applies to those connections. 
Additionally, IEX proposes to remove from this row the current footnote 
1, which currently reads: ``10G physical ports are available to connect 
to IEX's production systems (i.e., the IEX POP and Disaster Recovery 
Data Centers) and the IEX Test Facility (``ITF'').'' IEX is proposing 
to remove this footnote as the information contained therein is being 
added to other sections of the Connectivity Fees table.
     Add a new footnote 1 to the first row of the table, after 
the words ``$4,000 per month'', which states: ``Physical connectivity 
fees are billed to and payable by the Member, Service Bureau, Data 
Recipient, or Extranet Provider maintaining the physical port 
connection at the Primary Data Center based on the number of physical 
connections to the Primary Data Center as of the first of each month.''
     Add a new second row to the Connectivity Fees table 
specifying that a ``10G Physical Port Connection to Disaster Recovery 
Data Center'' is ``Included with 10G Physical Port Connection at 
Primary Data Center.''
     Update the (now) third row of the Connectivity Fees table 
so it reads ``1G or 10G Physical Port Connection to IEX Test Facility 
(``ITF'')'' are ``Included with 10G Physical Port Connection at Primary 
Data Center.'' Update footnote 2 to add the words ``and Service 
Bureaus'' after the word ``Members'', in order to reflect that both 
Members and Service Bureaus may have physical connections to the ITF.
     Update the (now) fourth row of the Connectivity Fees table 
so it reads ``Logical Port (except for Primary Data Center Order Entry 
Port)'' are free, to reflect that some Order Entry Ports, in particular 
at the ITF and the Disaster Recovery Data Center, will continue to be 
offered free of charge, and that all other logical ports (e.g., drop 
copy ports) will continue to be offered free of charge.
     Update the (now) fifth row of the Connectivity Fees table 
so it reads ``Primary Data Center Order Entry Port'' to specify that 
IEX will only be charging for Order Entry Ports (above 5 per Port 
Subscriber) at the Primary Data Center. No changes are proposed for 
footnote 3.
     Update footnote 4 to add the words ``Primary Data Center'' 
before the words ``Logical Order Entry Ports,'' and delete the second 
sentence of the footnote, because the effective date of these proposed 
fee changes will be the same date as the effective date of the fee 
schedule.
Implementation
    Although fee filings are immediately effective upon filing, IEX 
plans to implement these fee changes on June 1, 2024, in order to 
provide ample advance notice and allow impacted market participants 
time to prepare for the change. As proposed, monthly physical 
connectivity fees will be assessed based on the number of 10G physical 
port connections maintained by a Member, Service Bureau, Data 
Recipient, or Extranet Provider as of the first of each month. 
Similarly, monthly logical connectivity fees will be assessed based on 
the number of Primary Data Center Order Entry Ports assigned to each 
Member or Service Bureau as of the first of each month.
2. Statutory Basis
    IEX believes that the proposed fees are consistent with the 
provisions of Section 6(b) \37\ of the Act in general and further the 
objectives of Section 6(b)(4) \38\ of the Act, in particular, in that 
they are designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities. The Exchange also believes that the proposed fee 
changes promote just and equitable principles of trade and will not be 
unfairly discriminatory, consistent with the objectives of Section 
6(b)(5) \39\ of the Act.
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    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(4).
    \39\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the information provided herein to 
justify the proposed fees meets or exceeds the amount of detail 
required in respect of proposed fee changes under the Act, as well as 
the amount of detail required by the Commission in its review of 
similar fee filings by other exchanges \40\ and is also consistent with 
Staff Guidance \41\ on such filings. Accordingly, the Exchange believes 
that the proposed fees are consistent with the Act because they: (i) 
are reasonable, equitably allocated, not unfairly discriminatory, do 
not create an undue burden on competition; (ii) are consistent with 
prior Commission action on other exchanges' fee filings and the Staff 
Guidance; and (iii) are supported by evidence (including the revenue 
and cost data and analysis detailed below) that they are fair and 
reasonable and will not result in excessive pricing or supra-
competitive profit.
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    \40\ Specifically, the Commission allowed fee filings by MIAX 
Pearl and MEMX to remain effective by not suspending them within 60 
days of filing, see supra note 16.
    \41\ See Staff Guidance, supra note 25.
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    As discussed in the Purpose section and in IEX's Port and Market 
Data Fee Filings,\42\ IEX believes that exchanges, in setting fees of 
all types, should meet high standards of transparency to demonstrate 
why each new fee or fee amendment meets the requirements of the Act 
that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
market participants. The Exchange believes this high standard is 
especially important when an exchange imposes various fees for market 
participants to access an exchange's marketplace.
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    \42\ See Port Fee Filing, supra 10; IEX Market Data Fee Filing, 
supra note 15.
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    In the Staff Guidance, the Commission Staff stated that, ``[a]s an 
initial step in assessing the reasonableness of a fee, staff considers 
whether the fee is constrained by significant competitive forces.'' 
\43\ IEX believes that as a general matter, physical and logical 
connectivity fees cannot be sufficiently justified based on unproven 
assumptions about competition, notwithstanding that a newer and/or 
smaller securities exchange, such as IEX, may be less able to set 
prices for its physical and logical connectivity free of constraint by 
significant competitive forces than may be the case for more 
established securities exchanges.
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    \43\ See Staff Guidance, supra note 25.
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    The Staff Guidance further stated that, ``. . . even where an SRO 
cannot demonstrate, or does not assert, that significant competitive 
forces constrain the fee at issue, a cost-based discussion may be an 
alternative basis upon which to show consistency with the Exchange 
Act.'' \44\ Thus, similar to fee proposals submitted by other 
exchanges,\45\ IEX has not determined its proposed physical and logical 
connectivity fees based on assumptions about market competition, 
instead relying upon a cost-based model to determine a reasonable fee 
structure that is informed by the extent to which demand for each 
product drives IEX's overall costs. In this context, IEX believes the 
proposed fees overall are fair and reasonable as a form of cost 
recovery because they are designed to offset a portion of IEX's costs 
with a limited possibility of a reasonable return in excess of IEX's 
aggregate costs of offering physical and logical

[[Page 42532]]

connectivity, if actuals differ from projections.\46\
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    \44\ See Staff Guidance, supra note 25.
    \45\ See supra note 16.
    \46\ IEX has not sought to justify the proposed fees solely on 
the basis that fees of the same type are constrained by competition. 
To the extent that the Commission later determines that exchange 
fees for market data, technology, or other technology products in 
general may be justified on the basis that they are effectively 
constrained by market competition, IEX reserves the right in future 
filings to use competition analysis as an independent basis to show 
why particular fees meet the requirements of the Exchange Act.
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Cost Analysis
    In general, the Exchange believes that exchanges, in setting fees 
of all types, should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements that fees be reasonable, equitably allocated, not unfairly 
discriminatory, and not create an undue burden on competition among 
members and markets. In particular, the Exchange believes that the 
proposed fees meet the standards of the Exchange Act based on the 
relationship of the fees to related costs and to IEX's business 
objectives, without needing to rely on a market competition analysis.
    In proposing to charge fees for physical connectivity and increase 
fees for Order Entry Ports, the Exchange assessed those fees in a 
transparent way against its own aggregate costs of providing each 
service, as well as the impact on Members and other Connectivity 
Subscribers--both generally and in relation to other Members and 
Connectivity Subscribers, i.e., to reasonably assure the fee will not 
create an undue financial burden or impact on particular participants, 
smaller Members or Connectivity Subscribers, or competition among 
Members and other Connectivity Subscribers in general. The Exchange 
believes that this level of transparency is appropriate as a way of 
demonstrating that the fees meet the requirements of Section 19(b)(1) 
under the Act,\47\ and Rule 19b-4 thereunder,\48\ with respect to the 
types of information exchanges should provide when filing fee changes, 
and Section 6(b) of the Act,\49\ which requires, among other things, 
that exchange fees be reasonable and equitably allocated,\50\ not 
designed to permit unfair discrimination,\51\ and that they not impose 
a burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\52\ This rule change proposal addresses those 
requirements, and the analysis and data in each of the sections that 
follow are designed to clearly and comprehensively show how they are 
met.\53\
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    \47\ 15 U.S.C. 78s(b)(1).
    \48\ 17 CFR 240.19b-4.
    \49\ 15 U.S.C. 78f(b).
    \50\ 15 U.S.C. 78f(b)(4).
    \51\ 15 U.S.C. 78f(b)(5).
    \52\ 15 U.S.C. 78f(b)(8).
    \53\ See Staff Guidance, supra note 25. The Exchange notes that 
other newer entrants to the equities exchange marketplace (``non-
legacy exchanges'') have asserted that the Commission has 
historically applied different standards of transparency and 
accountability in evaluating whether their fee filings, as compared 
to fee filings by larger incumbent exchanges (``legacy exchanges''), 
satisfied the Act's requirements. See e.g., MIAX Connectivity Fee 
Filing, supra note 16.
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    As detailed below, the Exchange recently calculated its aggregate 
annual costs for providing physical connectivity at $12,904,100 (or 
approximately $1,075,342 per month for physical connectivity costs, 
rounded to the nearest dollar when dividing the combined annual cost by 
12 months). The Exchange also recently calculated its aggregate annual 
costs for providing Order Entry Ports at $5,924,000 (or approximately 
$493,667 per month for Order Entry Port costs, rounded to the nearest 
dollar when dividing the combined annual cost by 12 months). In order 
to cover a portion of the aggregate costs of providing physical and 
logical connectivity to its Connectivity Subscribers and Port 
Subscribers, respectively, the Exchange proposes to modify its Fee 
Schedule as described above.
    In connection with this fee filing, the Exchange recently conducted 
a cost analysis to determine the Exchange's costs associated with 
providing physical and logical connectivity to the Exchange (``2024 
Cost Analysis''). This 2024 Cost Analysis, similar to analyses 
performed by MIAX Pearl and MEMX in their connectivity fee filings 
\54\, included a comprehensive, wholistic, detailed analysis of the 
Exchange's aggregate baseline costs, including a determination and 
allocation of costs for core services provided by the Exchange--trading 
and routing, market data, physical connectivity, and logical ports 
(which provide order entry, cancellation and modification 
functionality, risk functionality, the ability to receive drop copies, 
and other functionality). The Exchange separately divided its costs 
between those costs necessary to deliver each of these core services, 
including infrastructure, software, human resources, and certain 
general and administrative expenses (``cost drivers'').\55\
---------------------------------------------------------------------------

    \54\ See supra note 16.
    \55\ IEX previously conducted cost analyses in 2019 in 
connection with charging for Order Entry Ports and in 2021 in 
connection with charging for market data. The 2024 Cost Analysis is 
a more comprehensive analysis that incorporates all expenses related 
to providing core Exchange services and is also consistent with the 
cost analyses described by MIAX Pearl and MEMX in their filings.
---------------------------------------------------------------------------

    The 2024 Cost Analysis specifies how hardware, software, vendor, 
and human resources costs were allocated for trading and routing, 
market data, physical connectivity, and logical ports, and identified 
an annual dollar cost for each line item in each category.\56\ The 
Exchange adopted an allocation methodology with transparent and 
consistently applied principles to guide how much of a particular cost 
amount should be allocated to each core service. As set forth below, 
the cost allocation process is then applied to each of the cost 
drivers. For instance, fixed infrastructure costs that are not driven 
by client activity (e.g., message rates), such as data center costs, 
were allocated more heavily to the provision of physical connectivity 
(54% of fixed infrastructure costs were allocated to physical 
connectivity, with smaller allocations to Order Entry Ports (6%), and 
the remainder to the provision of other connectivity, other ports, 
transaction execution, and market data services (40%). After adopting 
this allocation methodology, the Exchange then applied an allocation of 
each cost driver to each core service, resulting in the cost 
allocations described below.
---------------------------------------------------------------------------

    \56\ All allocation percentages discussed herein, were rounded 
up or down to the nearest whole number.
---------------------------------------------------------------------------

    By allocating segmented costs to each core service, the Exchange 
estimates by core service the potential positive or negative margins it 
might earn based on different fee models. As a non-listing venue, the 
Exchange has only several potential sources of revenue that it can use 
to fund its operations: transaction fees, fees for physical 
connectivity and port services, membership fees, regulatory fees, and 
market data fees. The Exchange does not charge membership or regulatory 
fees. Moreover, as a general matter, each of these sources of revenue 
is based on services that are interrelated. For instance, trading and 
routing obviously necessitates that Users have physical and logical 
connectivity to send orders to IEX. Given this interrelationship, the 
allocation of costs to each service and the relative weighting of such 
costs depends on the exercise of reasonable judgment by the Exchange. 
While there is no standardized and generally accepted methodology for 
the allocation of an exchange's costs across different products and 
services, the Exchange's methodology is the result of an extensive 
review and analysis, transparently applied, and IEX believes this 
methodology provides a more than

[[Page 42533]]

ample basis to justify the proposed fees, particularly in light of the 
adoption of similar or much larger fees by other exchanges \57\ with 
minimal or no cost analysis. Through the Exchange's extensive 2024 Cost 
Analysis, the Exchange analyzed each expense category in the Exchange's 
general expense ledger to determine whether and how to allocate such 
expense to the provision of physical and/or logical connectivity as 
appropriate.
---------------------------------------------------------------------------

    \57\ See infra notes 71 and 72.
---------------------------------------------------------------------------

Costs Related To Offering Physical Connectivity to the Primary Data 
Center, the Disaster Recovery Data Center and the ITF
    The following charts detail the costs considered by the Exchange to 
be related to offering physical connectivity to the Primary Data 
Center, Disaster Recovery Data Center, and ITF, each via an unshared 
network as well as the percentage of the Exchange's overall costs that 
such costs represent for each cost driver (e.g., as set forth below, 
the Exchange allocated 14% of its overall Human Resources cost to 
offering physical connectivity to the Primary Data Center, Disaster 
Recovery Data Center, and ITF).

                           Primary Data Center, Disaster Recovery Data Center, and ITF
----------------------------------------------------------------------------------------------------------------
                                                                                     Allocated
                         Cost drivers                           Allocated annual   monthly cost      % of cost
                                                                    cost \a\            \b\           driver
----------------------------------------------------------------------------------------------------------------
Human Resources..............................................         $7,475,449        $622,954              14
Connectivity (external fees, cabling, switches, etc.)........                  0               0               0
External Market Data.........................................                  0               0               0
Data Center..................................................          2,721,667         226,806              71
Hardware and Software Maintenance and Licenses and Internet            1,244,888         103,741              37
 Services....................................................
Depreciation.................................................             88,132           7,344               7
Allocated Shared Expenses....................................          1,373,962         114,497               8
                                                              --------------------------------------------------
    Total....................................................         12,904,100       1,075,342              15
----------------------------------------------------------------------------------------------------------------
\a\ The Annual Cost includes figures rounded to the nearest dollar.
\b\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    The following are additional details regarding each of the cost 
drivers considered by the Exchange to be related to offering physical 
connectivity to the Primary Data Center, Disaster Recovery Data Center 
and the ITF.
Human Resources
    The Exchange notes that IEX Group, Inc. (``IEXG'') (the parent 
company of the Exchange) had 68 employees who were fully dedicated to 
Exchange functions and 59 employees who performed some functions on 
behalf of the Exchange as of February 29, 2024. Each department leader 
has direct knowledge of the time spent by each employee with respect to 
the various tasks necessary to operate the Exchange. The estimates of 
Human Resources cost were therefore determined by consulting with such 
department leaders, determining which employees are involved in tasks 
related to providing physical connectivity, and confirming that the 
proposed allocations were reasonable based on an understanding of the 
percentage of their time such employees devote to such tasks, as well 
as to other exchange services. This process ensures that every employee 
is 100% allocated, with no double counting of employee time across 
different categories of exchange services. For shared services employee 
costs, the Exchange first allocated a percentage of the shared services 
employees from IEXG to the Exchange. This allocation was based on an 
assessment during the company's annual budget process by IEXG's 
management and Finance teams on how the shared services functions 
support the IEXG's different businesses. This assessment resulted in 
75% of the shared services employees' costs being allocated to the 
Exchange. For the 2024 Cost Analysis, the Exchange calculated an 
average of the direct and ancillary employees time devoted to physical 
connectivity (approximately 14%) and applied the 14% average to each 
shared services department's employee costs. This rate was deemed 
appropriate for shared services employees as these functions operate to 
support the direct and ancillary functions. Overall, employee costs, as 
allocated, were calculated using a blended rate of compensation 
reflecting salary, equity and bonus compensation, benefits, payroll 
taxes, and 401(k) matching contributions and totaled 14% of Exchange 
Human Resources expenses.\58\
---------------------------------------------------------------------------

    \58\ The 14% average allocation applied to shared services 
employees represents an average of the time that the direct and 
ancillary employees spend on physical connectivity. The 14% overall 
Human Resource allocation represents the total of the direct, 
ancillary and shared services employees cost allocations to physical 
connectivity. While the number is coincidentally the same for this 
allocation, the overall total represents a different calculation in 
that the components attributable to direct and ancillary employees 
reflect variations in individual employee compensation and time 
spent on physical connectivity.
---------------------------------------------------------------------------

    Specifically, the Exchange calculated an allocation of employee 
time for employees whose functions include providing and maintaining 
physical connectivity and performance thereof, specifically Data 
Engineering, Network Engineering, Software Development Engineer and 
Test/Quality Assurance, Software Engineering, System Reliability 
Engineering, and Technology Project Management. The Exchange also 
allocated Human Resources costs to the provision of physical 
connectivity to a limited subset of employees with ancillary functions 
related to establishing and maintaining such physical connectivity, 
specifically Business Analytics, Business Development, Business 
Operations, Market Operations, Market Policy, Product, Quantitative 
Research and Regulation. In addition, the Exchange allocated Human 
Resources costs to employees in groups providing shared services that 
thereby support physical connectivity, specifically Marketing, Office 
Management, Human Resources, Finance & Accounting, Information 
Security, Legal, Risk, Government Relations, senior level executives, 
and Compliance employees.
    For employees that have direct or ancillary functions related to 
physical connectivity, the estimates of Human Resources cost were 
determined by consulting with applicable department leaders, who 
determined which employees are involved in tasks related

[[Page 42534]]

to providing physical connectivity, and provided reasonable allocations 
based on an estimate of the percentage of time such employees devote to 
those tasks. Employees from these departments perform numerous 
functions to support physical connectivity, such as the installation, 
re-location, configuration, and maintenance of connections and the 
hardware they access. This hardware includes servers, routers, 
switches, firewalls, and monitoring devices. These employees also 
perform software upgrades, vulnerability assessments, remediation and 
patch installs, equipment configuration and hardening, as well as 
performance and capacity management. Further, these employees engage in 
research and development analysis for equipment and software supporting 
physical connectivity and design, provide regulatory oversight, and 
support the development and on-going maintenance of internally 
developed applications as well as data capture and analysis, and Member 
and internal Exchange reports related to network and system 
performance. The above list of employee functions is not exhaustive of 
all the functions performed by Exchange employees to support physical 
connectivity, but it illustrates the breath of functions those 
employees perform in support of the above cost and time allocations.
    Last, the Exchange notes that its Human Resources costs associated 
with physical connectivity have increased in recent years as the 
Exchange engaged in a several-years-long initiative to upgrade its 
system infrastructure and trading system, as discussed in the Purpose 
section. Thus, employees are allocated to work on various business 
initiatives and enhancements to support the Exchange's business, add 
new functionality, and expand its product offerings. These technology 
changes directly impact the Exchange's interface specifications and 
matching engine which, in turn, impacts physical connectivity by 
requiring additional coding, testing, and other updates necessary to 
accommodate the above initiatives.
Connectivity (External Fees, Cabling, Switches,)
    The Exchange did not allocate costs for physical connectivity to 
external markets to receive market data to the provision of physical 
connectivity. As discussed below, a portion of such costs (as well as 
market data fees paid to external markets) were allocated to logical 
access as such market data is necessary for IEX to offer certain 
services related to such connectivity, such as certain risk checks that 
are performed prior to execution, and checking for other conditions 
(e.g., limit order price protection, trading collars, aggregate and net 
notional risk checks, LULD bands).
External Market Data
    The Exchange did not allocate external market data fees to the 
provision of physical connectivity. As discussed below, a portion of 
such fees were allocated to logical access, as such market data is 
necessary for IEX to offer certain services related to such 
connectivity, such as certain risk checks that are performed prior to 
execution, and checking for other conditions (e.g., limit order price 
protection, trading collars, aggregate and net notional risk checks, 
LULD bands).
Data Center
    Data Center costs include the costs the Exchange incurs to provide 
physical connectivity in the third-party data centers where it 
maintains its equipment (such as dedicated space, security services, 
cooling and power). The Exchange does not own the Primary Data Center 
or the Disaster Recovery Data Center, but instead, leases space in data 
centers operated by third parties. The Exchange has allocated a high 
percentage of the Data Center costs (71%) to physical connectivity 
because the third-party data centers and the Exchange's physical 
equipment contained therein is the most direct cost in providing 
physical access to the Exchange. In other words, for the Exchange to 
operate in a dedicated space with connectivity by market participants 
to a trading platform, costs to operate in the data centers are 
tangible costs that are directly related to its ability to offer 
physical connectivity to market participants.
Hardware and Software Maintenance and Licenses and Internet Services
    Hardware and Software Licenses and internet Services includes 
hardware and software licenses used to operate and monitor physical 
assets necessary to offer physical connectivity to the Exchange, such 
as integrated development environments, data visualization applications 
for building monitoring and real time analytic dashboards, knowledge 
management services and release management software. IEX allocated 37% 
of Exchange Hardware and Software Maintenance and Licenses and internet 
Services expenses to the provision of physical connectivity.
Depreciation
    All physical assets, software, and hardware used to provide 
physical connectivity, which also includes assets used for testing and 
monitoring of Exchange infrastructure, were valued at cost, and 
depreciated over three years. In general, the Depreciation costs 
overall relate to hardware necessary to operate the Exchange, some of 
which are owned by the Exchange and some of which are leased by the 
Exchange to allow efficient periodic technology refreshes. The Exchange 
also included in the Depreciation cost driver certain budgeted 
improvements that the Exchange intends to capitalize and depreciate 
with respect to physical connectivity in the near-term. As with the 
other allocated costs in the Exchange's 2024 Cost Analysis, the 
Depreciation cost was narrowly tailored to depreciation related to 
physical connectivity. As noted above, the Exchange allocated 7% of its 
allocated depreciation costs to providing physical connectivity.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to overall physical connectivity 
costs (8% of Exchange Allocated Shared Expenses). These general shared 
costs are integral to exchange operations, including its ability to 
provide physical connectivity. Costs included in general shared 
expenses include office space and office expenses (e.g., occupancy and 
overhead expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications. These general shared expenses are incurred by the 
Exchange's parent company, IEXG, as a direct result of operating the 
Exchange. The Exchange allocated shared services costs in line with the 
average allocation rate for employees in the direct and ancillary 
categories (14%), consistent with the methodology used to allocate the 
cost of shared services employees as described above.\59\ The Exchange 
believes it is reasonable to assign an allocation of shared expenses to 
physical connectivity, consistent with allocations for shared services 
employees, while continuing to ensure that such allocated expenses are 
not double counted when allocated to other products and services for 
which the

[[Page 42535]]

Exchange charges fees. Separately, for other shared expenses related to 
the Exchange's regulatory obligations, such as fees paid to FINRA 
pursuant to a regulatory services agreement between the Exchange and 
FINRA, fees paid to the Depository Trust and Clearing Corporation, 
audit fees, and fees paid to Securities Information Processors, were 
allocated differently, less than 1% was allocated to the provision of 
physical connectivity. Thus, the Allocated Shared Expenses applied to 
offering physical connectivity totaled 8%.
---------------------------------------------------------------------------

    \59\ The 14% average allocation applied to applicable allocated 
shared expenses is based on the average of the time that the direct 
and ancillary employees spend on physical connectivity.
---------------------------------------------------------------------------

Approximate Monthly Cost
    After determining the approximate allocated monthly cost related to 
physical connectivity, the total monthly cost for physical connectivity 
to the Primary Data Center, Disaster Recovery Data Center, and ITF of 
$1,075,342 was divided by the number of Primary Data Center physical 
connections the Exchange maintained (because Disaster Recovery Center 
and ITF connectivity is included with each connection to the Primary 
Data Center) as of February 29, 2024 (180 connections), to arrive at a 
cost of approximately $5,974 per month, per physical 10G connection.
* * * * *
Costs Related To Offering Order Entry Ports
    The following chart details the individual line-item costs 
considered by the Exchange to be related to offering Order Entry Ports 
as well as the percentage of the Exchange's overall costs such costs 
represent for such area (e.g., as set forth below, the Exchange 
allocated 8% of its overall Human Resources cost to offering Order 
Entry Ports).\60\
---------------------------------------------------------------------------

    \60\ As described above, IEX is proposing to continue to not 
charge fees for the first five Order Entry Ports at the Primary Data 
Center assigned to any Port Subscriber, and to not charge fees for 
logical connectivity to the Disaster Recovery Data Center or ITF.

                                                Order Entry Ports
----------------------------------------------------------------------------------------------------------------
                                                                                     Allocated
                         Cost drivers                           Allocated annual   monthly cost     Percent of
                                                                    cost \c\            \d\         cost driver
----------------------------------------------------------------------------------------------------------------
Human Resources..............................................         $4,227,561        $352,297               8
Connectivity (external fees, cabling, switches, etc.)........            161,051          13,421               5
External Market Data.........................................            141,035          11,753               8
Data Center..................................................            122,923          10,244               3
Hardware and Software Maintenance and Licenses and Internet              345,906          28,826              10
 Services....................................................
Depreciation.................................................            225,727          18,811              18
Allocated Shared Expenses....................................            699,796          58,316               4
                                                              --------------------------------------------------
    Total....................................................          5,924,000         493,667               7
----------------------------------------------------------------------------------------------------------------
\c\ The Annual Cost includes figures rounded to the nearest dollar.
\d\ The Monthly Cost was determined by dividing the Annual Cost for each line item by twelve (12) months and
  rounding up or down to the nearest dollar.

    The following provides additional detail regarding each of the cost 
drivers considered by the Exchange to be related to offering Order 
Entry Ports.
Human Resources
    As noted above, IEXG (the parent company of the Exchange) had 68 
employees who are fully dedicated to Exchange functions and 59 
additional employees who perform some functions on behalf of the 
Exchange as of February 29, 2024. As discussed in the section on 
physical connectivity, each department leader has direct knowledge of 
the time spent by each employee with respect to the various tasks 
necessary to operate the Exchange. The estimates of Human Resources 
cost were therefore determined by consulting with applicable department 
leaders, who determined which employees are involved in tasks related 
to providing Order Entry Ports, and provided reasonable allocations 
based on an understanding of the percentage of their time such 
employees devote to such tasks. This process ensures that every 
employee is 100% allocated, with no double counting of employee time 
across different categories of exchange services. For shared services 
employee costs, the Exchange first allocated a percentage of the shared 
services employees from IEXG to the Exchange. This allocation was based 
on an assessment during the company's annual budget process by IEXG's 
management and Finance teams on how the shared services functions 
support IEXG's different businesses. This assessment resulted in 75% of 
the shared services employee's costs being allocated to the Exchange. 
The Exchange then allocated these costs to its core services, including 
logical ports in line with the average allocation rate for employees in 
the direct and ancillary categories. For the 2024 Cost Analysis, the 
Exchange calculated an average of the direct and ancillary employees 
time devoted to logical connectivity (7%) and applied the 7% average to 
each shared services department's employee costs. This rate was deemed 
appropriate for shared services employees as these functions operate to 
support the direct and ancillary functions. Overall, employee costs for 
employees in the direct, ancillary and shared services categories, as 
allocated, were calculated using a blended rate of compensation 
reflecting salary, equity and bonus compensation, benefits, payroll 
taxes, and 401(k) matching contributions and totaled 8% of Exchange 
Human Resources expenses.\61\
---------------------------------------------------------------------------

    \61\ The 7% average allocation applied to shared services 
employees represents an average of the time that the direct and 
ancillary employees spend on logical Order Entry Ports. The 8% 
overall Human Resource allocation represents the total of the 
direct, ancillary and shared services employees cost allocations to 
logical connectivity. The overall total represents a different 
calculation than the average allocation in that the components 
attributable to direct and ancillary employees reflect variations in 
individual employee compensation and time spent on logical 
connectivity.
---------------------------------------------------------------------------

    Specifically, the Exchange calculated an allocation of employee 
time for employees whose functions include providing and maintaining 
Order Entry Ports and performance thereof, specifically Data 
Engineering, Network Engineering, Software Development Engineer and 
Test/Quality Assurance, Software Engineering, System Reliability 
Engineering, and Technology Project Management. The Exchange also 
allocated Human Resources costs to the provision of Order Entry Ports 
to a limited subset of employees with

[[Page 42536]]

ancillary functions related to establishing and maintaining such 
connectivity, specifically Business Analytics, Business Development, 
Business Operations, Market Operations, Market Policy, Product, 
Quantitative Research and Regulation. In addition, the Exchange 
allocated Human Resources costs to employees in groups providing shared 
services that thereby support Order Entry Ports, specifically 
Marketing, Office Management, Human Resources, Finance & Accounting, 
Information Security, Legal, Risk, Government Relations, senior level 
executives, and Compliance employees.
    For employees that have direct or ancillary functions related to 
Order Entry Ports, the estimates of Human Resources cost were 
determined by consulting with applicable department leaders, who 
determined which employees are involved in tasks related to providing 
logical connectivity, and provided reasonable allocations based on an 
estimate of the percentage of time such employees devote to those 
tasks. Employees from these departments perform numerous functions to 
support logical connectivity, such as the installation, re-location, 
configuration, and maintenance of connections and the hardware they 
access. This hardware includes servers, routers, switches, firewalls, 
and monitoring devices. These employees also perform software upgrades, 
vulnerability assessments, remediation and patch installs, equipment 
configuration and hardening, and performance and capacity management. 
Further, these employees engage in research and development analysis 
for equipment and software supporting logical connectivity and design, 
provide regulatory oversight, and support the development and on-going 
maintenance of internally developed applications as well as data 
capture and analysis, and Member and internal Exchange reports related 
to network and system performance. The above list of employee functions 
is not exhaustive of all the functions performed by Exchange employees 
to support logical connectivity, but it illustrates the breath of 
functions those employees perform in support of the above cost and time 
allocations.
    Last, the Exchange notes that its Human Resources costs associated 
with logical connectivity have increased in recent years as the 
Exchange engaged in a several-years-long initiative to upgrade its 
system infrastructure and trading platform, as discussed in the Purpose 
section. Thus, employees are allocated to work on various business 
initiatives and enhancements to support the Exchange's business, add 
new functionality, and expand its product offerings. These technology 
changes directly impact the Exchange's interface specifications and 
matching engine which, in turn, impacts logical connectivity by 
requiring additional coding, testing, and other updates necessary to 
accommodate the above initiatives.
Connectivity (External Fees, Cabling, Switches, etc.)
    The Connectivity cost driver includes external fees paid to connect 
to other exchanges, cabling, and switches. The Connectivity cost driver 
includes external fees paid to connect to other exchanges and third 
parties, along with other cable and switch infrastructure required to 
operate the Exchange. The Connectivity cost driver is narrowly focused 
on technology used to complete connections on the Exchange and to 
connect to external markets. The Exchange requires connectivity to 
external markets to enable it to receive market data to run the 
Exchange's matching engine (and make routing decisions for its 
affiliated routing broker, IEX Services, LLC, pursuant to IEX Rule 
2.220) and basic operations compliant with existing regulations, 
primarily Regulation NMS. The Exchange allocated 5% of such costs (as 
well as market data fees paid to external markets) to logical access as 
such market data is necessary for IEX to offer certain services related 
to such connectivity, such as certain risk checks that are performed 
prior to execution, and checking for other conditions (e.g., limit 
order price protection, trading collars, and aggregate and net notional 
risk checks, LULD bands).
External Market Data
    External Market Data includes fees paid to third parties, including 
other exchanges, to receive and consume market data from other markets. 
The Exchange includes a portion of External Market Data fees to the 
provision of Order Entry Ports as such market data is also necessary to 
offer certain services related to such connectivity, such as certain 
risk checks that are performed before an order enters the matching 
engine (e.g., validating orders against the national best bid and 
national best offer, trading collars, whether a symbol is halted or 
subject to a short sale circuit breaker). Thus, as market data from 
other exchanges is consumed at the port level to validate orders before 
additional processing occurs with respect to such orders, the Exchange 
believes it is reasonable to allocate a limited proportion of such 
costs to Order Entry Ports (8% of Exchange External Market Data 
expenses).
Data Center
    Data Center costs include the costs the Exchange incurs to provide 
logical connectivity in the third-party data centers where it maintains 
its equipment (such as rent for dedicated space, security services, 
cooling and power). The Exchange does not own the Primary Data Center 
or the Disaster Recovery Data Center, but instead, leases space in data 
centers operated by third parties. The Exchange has allocated a portion 
of the Data Center cost to logical access ports based on its reasonable 
assessment (3% of Data Center expenses).
Hardware and Software Maintenance and Licenses and Internet Services
    Hardware and Software Licenses include hardware and software 
licenses used to monitor the health of the order entry services 
provided by the Exchange, as described above. The Exchange uses a 
third-party vendor to provide the initial logical order entry port 
configurations, which have been extensively customized by Exchange 
employees. Internet Services relate to the internet Service Provider 
vendor that is used to monitor and administer the order entry port 
sessions. The Exchange allocated 10% of Hardware and Software 
Maintenance and Licenses and internet Services expenses to the 
provision of Order Entry Ports based upon its reasonable assessment.
Depreciation
    As noted above, the software the Exchange uses to provide Order 
Entry Ports is licensed from a third-party service provider, although 
it has been significantly customized by in-house employees. Related 
costs include both development work, as well as quality assurance and 
testing to ensure the software works as intended. These costs are 
depreciated over time once the software is activated in the production 
environment. Hardware used to provide Order Entry Ports includes 
equipment used for testing and monitoring of order entry infrastructure 
and other physical equipment the Exchange purchased and is also 
depreciated over time.
    All hardware and software, which also includes assets used for 
testing and monitoring of order entry infrastructure, were valued at 
cost and depreciated or leased over a three-year period. Thus, the 
depreciation cost primarily relates to servers necessary to operate the 
Exchange, some of which is owned by the Exchange and some of which is 
leased by the Exchange in order to allow

[[Page 42537]]

efficient periodic technology refreshes. The Exchange allocated 18% of 
Exchange Depreciation expenses to the provision of Order Entry Ports 
based upon its reasonable assessment.
Allocated Shared Expenses
    Finally, as with other exchange products and services, a portion of 
general shared expenses was allocated to overall logical connectivity 
costs (4% of Exchange Allocated Shared Expenses). These general shared 
costs are integral to exchange operations, including its ability to 
provide logical connectivity. Costs included in general shared expenses 
include office space and office expenses (e.g., occupancy and overhead 
expenses), utilities, recruiting and training, marketing and 
advertising costs, professional fees for legal, tax and accounting 
services (including external and internal audit expenses), and 
telecommunications. These general shared expenses are incurred by the 
Exchange's parent company, IEXG, as a direct result of operating the 
Exchange. The Exchange allocated shared services costs in line with the 
average allocation rate for employees in the direct and ancillary 
categories (7%), consistent with the methodology used to allocate the 
cost of shared services employees as described above.\62\ The Exchange 
believes it is reasonable to assign an allocation of shared expenses to 
logical Order Entry Ports, consistent with allocations for shared 
services employees, while continuing to ensure that such allocated 
expenses are not double counted when allocated to other products and 
services for which the Exchange charges fees. Separately, for other 
shared expenses related to the Exchange's regulatory obligations, such 
as fees paid to FINRA pursuant to a regulatory services agreement 
between the Exchange and FINRA, fees paid to the Depository Trust and 
Clearing Corporation, audit fees, and fees paid to Securities 
Information Processors, were allocated differently, less than 1% was 
allocated to the provision of logical connectivity. Thus, the Allocated 
Shared Expenses applied to offering physical connectivity totaled 4%.
---------------------------------------------------------------------------

    \62\ The 7% average allocation applied to applicable allocated 
shared expenses is based on the average of the time that the direct 
and ancillary employees spent on logical connectivity.
---------------------------------------------------------------------------

* * * * *
Approximate Monthly Cost
    The total monthly cost allocated to logical ports of $493,667 was 
divided by the number of chargeable Order Entry Ports the Exchange 
maintained at the time that proposed pricing was determined \63\ 
(1,161), to arrive at a cost of approximately $425 per month, per 
chargeable Order Entry Port (rounded to the nearest dollar when 
dividing the approximate monthly cost by the number of Order Entry 
Ports).
---------------------------------------------------------------------------

    \63\ The Exchanges' costs for providing logical connectivity 
include the costs of providing logical connectivity for which the 
Exchange charges no fees (i.e., free logical connectivity to its 
Disaster Recovery Data Center or its ITF, as well as up to five free 
Order Entry Ports to its Primary Data Center to Port Subscribers). 
See supra note 60. Thus the total number of assigned Order Entry 
Ports figure includes more ports than the total number of ports for 
which the Exchange charges any fees.
---------------------------------------------------------------------------

* * * * *
Cost Analysis--Additional Discussion
    In conducting its 2024 Cost Analysis, the Exchange did not 
generally allocate any overall expense category in full to any core 
services (including physical connectivity or logical Order Entry Ports) 
and did not double-count any expenses. Instead, as described above, the 
Exchange allocated applicable cost drivers across its core services. 
For instance, in calculating the Human Resources expenses to be 
allocated to physical connections based upon the methodology described 
above, the Exchange allocated network infrastructure employees with a 
high percentage of the cost of such employees (75%) to physical 
connectivity given their focus on functions necessary to provide 
physical connections. The compensation of those same employees was 
allocated 20% to Order Entry Ports, and the remaining 5% was allocated 
to trading and routing, market data, and other Exchange functions. For 
ancillary employees, who work closely with and support network 
infrastructure employees, the Exchange allocated a smaller percentage 
of 8% for physical connectivity and 4% for Order Entry Ports, with the 
remaining 88% allocated to trading and routing, market data, and other 
core services provided by the Exchange. For shared services employees, 
the Exchange allocated costs across a wider range of employee groups 
pursuant to the allocation methodology described above resulting in an 
allocation of 14% to physical connectivity, 8% to Order Entry Ports, 
and 78% to trading and routing, market data, and other core services 
provided by the Exchange.
    In total, the Exchange allocated 14% of its Human Resources costs 
to providing physical connectivity and 8% of its Human Resources costs 
to providing Order Entry Ports, for a total allocation of 22% of its 
Human Resources expense to provide these specific connectivity 
services. In turn, the Exchange allocated the remaining 78% of its 
Human Resources expense toward the cost of providing trading and 
routing, market data and other core services provided by the Exchange.
    The Exchange allocated depreciation expense to all core services, 
including physical connections and Order Entry Ports, but in different 
amounts. The Exchange believes it is reasonable to allocate the 
identified portion of such expense because such expense includes the 
actual cost of the computer equipment, such as dedicated servers, 
computers, laptops, monitors, information security appliances and 
storage, and network switching infrastructure equipment, including 
switches and taps that were purchased to operate and support the 
network. Without this equipment, IEX would not be able to operate the 
Exchange and provide connectivity services to its Members and Sponsored 
Participants. The Exchange allocated 25% of overall depreciation and 
amortization expense to connectivity services (7% attributed to 
physical connectivity and 18% to Order Entry Ports). The Exchange 
allocated the remaining depreciation and amortization expense (75%) 
toward the cost of providing trading and routing, market data, and 
other Exchange functions.
    The Exchange's revenue estimates described herein are based on 
projections for physical connectivity and Order Entry Ports and will 
only be realized to the extent such revenue streams actually produce 
the revenue estimated. The Exchange does not yet know whether such 
expectations will be realized. For instance, in order to generate the 
revenue expected from connectivity, the Exchange will have to be 
successful in retaining existing clients that wish to maintain physical 
connectivity and/or Order Entry Ports or in obtaining new clients that 
will purchase such services.
    The 2024 Cost Analysis is based on the Exchange's 2024 fiscal year 
of operations and projections. It is possible, however, that actual 
costs may be higher or lower. To the extent the Exchange sees growth in 
use of connectivity services, it will receive additional revenue to 
offset current costs and future cost increases.
    However, if use of connectivity services is static or decreases, 
the Exchange might not realize the revenue that it anticipates or needs 
in order to offset applicable costs as projected and described herein. 
In the event revenues fail to cover future costs and a reasonable mark-
up of such costs (potential future markup of such costs), the Exchange 
may later propose to

[[Page 42538]]

increase related fees. Similarly, the Exchange may propose to decrease 
fees in the event that revenue materially exceeds our current projected 
costs. In addition, the Exchange will periodically conduct a review to 
inform its decision making on whether a fee change is appropriate 
(e.g., to monitor for costs increasing/decreasing or subscribers 
increasing/decreasing, etc. in ways that suggest the then-current fees 
are becoming dislocated from the prior cost-based analysis) and would 
propose to increase fees in the event that revenues fail to cover its 
costs, or decrease fees in the event that revenue or the mark-up 
materially exceeds our current projected costs so that it would 
constitute excessive pricing or a supra-competitive profit. In the 
event that the Exchange determines to propose a fee change, the results 
of a timely review, including an updated cost estimate, will be 
included in the rule filing proposing the fee change. More generally, 
the Exchange believes that it is appropriate for an exchange to refresh 
and update information about its relevant costs and revenues in seeking 
any future changes to fees, and the Exchange commits to do so.
Projected Revenue
    The proposed fees will allow the Exchange to cover certain costs 
incurred by the Exchange associated with providing and maintaining 
necessary hardware and other network infrastructure as well as network 
monitoring and support services. Without such hardware, infrastructure, 
monitoring and support, the Exchange would be unable to provide the 
physical connectivity and Order Entry Port services required by 
Connectivity Subscribers and Port Subscribers.
    The Exchange routinely works to improve the performance of the 
network's hardware and software. The costs associated with maintaining 
and enhancing a state-of-the-art exchange network is a significant 
expense for the Exchange, and thus the Exchange believes that it is 
reasonable and appropriate to offset a portion of those costs, with a 
limited potential return in excess of such costs if actuals differ from 
projections, by adopting and increasing fees for connectivity services. 
Costs in this category enable the Exchange, for example, to measure 
network performance with nanosecond granularity and allow the Exchange 
to continuously improve network performance, based on Connectivity 
Subscribers' needs and expectations.
    As detailed above, the Exchange has five primary sources of revenue 
that it can potentially use to fund its operations: transaction fees, 
fees for connectivity services, membership and regulatory fees (which 
the Exchange does not charge), and market data fees. Accordingly, the 
Exchange must cover its expenses from these five primary sources of 
revenue.
    The Exchange's 2024 Cost Analysis estimates the 2024 annual cost to 
provide physical connectivity will be $12,904,100. These costs include 
costs to provide physical connectivity at IEX's Primary Data Denter, 
Disaster Recovery Data Center, and ITF. Based on current usage (i.e., 
that all current Connectivity Subscribers pay fees as proposed to 
maintain existing physical connectivity), the Exchange estimates that 
it would generate annual revenue of approximately $8,640,000, that 
would cover 67% of such costs. The cost recovery would vary from this 
estimate if actual usage were more or less than current usage.
    The Exchange's 2024 Cost Analysis estimates the 2024 annual cost to 
provide Order Entry Ports services will be $5,924,000. Based on current 
usage, the Exchange estimates that would generate annual revenue of 
approximately $3,483,000, that would cover 59% of such costs.\64\ The 
cost recovery would vary from this estimate if actual usage were more 
or less than current usage.
---------------------------------------------------------------------------

    \64\ For comparison, see MEMX Connectivity Fees Filing, 
Securities Exchange Act Release No. No. 95936 (September 27, 2022), 
87 FR 59845, 59851 (October 3, 2022) (SR-MEMX-2022-26) (proposing to 
adopt fees for connectivity and stating that MEMX would earn 
approximately 8% markup).
---------------------------------------------------------------------------

    Based on the above discussion, IEX believes that the proposed fees 
are fair and reasonable because they are reasonably related to the 
associated costs of providing products and services and will not result 
in excessive pricing, or supra-competitive profit. To the contrary, the 
proposed fees are expected to only provide a partial recovery of its 
costs to provide physical and logical connectivity. Further, the 
proposed fees are comparable to, or lower than, similar fees for 
similar products charged by competing exchanges. For example, for 
physical connectivity to the Primary Data Center which would include 
physical connectivity at the Disaster Recovery Data Center and the ITF, 
the Exchange proposes a lower monthly fee ($4,000) than the monthly 
fees charged by MIAX Pearl ($8,000), MEMX ($6,000), and Cboe EDGA 
($8,500) for just their 10G connections to their primary data 
centers.\65\ Moreover, IEX is not proposing to charge additional fees 
for physical connectivity to its Disaster Recovery Data Center, while 
competing exchanges charge separately for such connectivity. 
Specifically, MIAX Pearl charges a monthly fee of $3,000, MEMX charges 
a monthly fee of $3,000, and Cboe EDGA charges a monthly fee of $6,000 
for their comparable 10G connections to their secondary data 
centers.\66\ Similarly, the proposed increases to the logical port fees 
would continue to result in lower fees than those of IEX's competitors. 
Accordingly, the Exchange believes that this comparative analysis 
provides an additional layer of support for how its proposed fees meet 
the requirements of the Act in that they are lower than the fees 
charged by competing exchanges.\67\
---------------------------------------------------------------------------

    \65\ See MIAX Pearl Equities Exchange Fee Schedule as of May 1, 
2024, available at https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_05012024.pdf; 
MEMX Connectivity Fee Schedule, available at https://info.memxtrading.com/connectivity-fees/; Cboe U.S. Equities Fee 
Schedule, EDGA Equities, available at https://www.cboe.com/us/equities/membership/fee_schedule/edga/.
    \66\ See supra note 65.
    \67\ However, even if the Exchange earns incrementally more 
revenue, the proposed fees are fair and reasonable because they 
would not result in excessive pricing or supra-competitive profit 
compared to other equities exchanges, based on the total expenses of 
the Exchange associated with providing physical connectivity and 
Order Entry Ports versus the total projected revenue of the Exchange 
associated with those services.
---------------------------------------------------------------------------

    The Exchange believes it is appropriate and consistent with the Act 
to raise its fees, as proposed, to facilitate enhancements and upgrades 
to its technology, which are essential for it to continue to compete 
with other equities exchanges. The Exchange believes the proposed fees 
are reasonable because they are based on the extent to which each 
product drives the Exchange's overall costs, which recognizes that 
certain market participants ascribe certain market value to each such 
product, and the Exchange's objective to make access to its trading 
system broadly available to market participants.
    The Exchange notes that its revenue estimates are based on 
projections and will only be realized to the extent customer activity 
produces the revenue estimated. The Exchange does not yet know whether 
such projections will be realized. For instance, in order to generate 
the revenue expected from physical connectivity as well as Order Entry 
Ports, the Exchange will need to be successful in retaining existing 
clients that wish to utilize its physical connectivity and Order Entry 
Ports and/or obtaining new clients that will purchase such access. To 
the extent the Exchange experiences a net loss in Connectivity or Port 
Subscribers, the Exchange could experience a net reduction in revenue. 
In assessing an

[[Page 42539]]

exchange's rule filing to adopt non-transaction fees based on a cost 
analysis, IEX believes that it is also relevant for the Commission to 
consider the extent to which the proposed fees are comparable to and 
competitive with similar fees charged by other exchanges in order to 
ensure that the regulatory oversight of comparable fees across 
exchanges is applied in a way that promotes fair and non-discriminatory 
intermarket competition.
The Proposed Pricing Is Not Unfairly Discriminatory and Provides for 
the Equitable Allocation of Fees, Dues, and Other Charges
Physical Connectivity Fees
    IEX believes that its proposed physical connectivity fee of $4,000 
to connect to the Primary Data Center, which includes physical 
connectivity to the Disaster Recovery Data Center and ITF for no 
additional charge, is reasonable, fair and equitable, and not unfairly 
discriminatory because it is designed to align fees with the costs of 
services provided and will apply equally to all Members and other 
Connectivity Subscribers \68\ with direct physical connectivity to the 
Exchange, and will minimize barriers to entry by providing high speed 
10G connectivity at prices well below those offered by any other 
exchange. IEX believes that the cost-based fee of $4,000 per month is 
low enough that it will not operate to restrain any subscriber's 
ability to maintain physical connectivity to the Exchange. These lower 
fees for 10G physical connectivity mean that even those firms which 
might maintain two or more physical connections to the Exchange will 
still pay considerably less than competing exchanges charge for 
equivalent physical connectivity. Further, the number of physical 
connections to the Exchange will continue to be based on decisions by 
each firm, including the ability to reduce fees by reducing the number 
of physical connections to the Exchange.
---------------------------------------------------------------------------

    \68\ As discussed above, the types of firms that might pay for 
physical connectivity to the Exchange are: Members, Service Bureaus, 
Data Recipients, and Extranet Providers.
---------------------------------------------------------------------------

    The Exchange believes that charging $4,000 for physical 
connectivity to the Exchange is fair and equitable, and not unfairly 
discriminatory because it will enable all Members (and other firms with 
physical connectivity) to obtain a 10G connection to IEX at prices 
well-below those of any other equity exchange, thereby encouraging 
order flow and liquidity from a diverse set of market participants, 
facilitating price discovery and the interaction of orders. IEX also 
notes that Connectivity Providers that determine they need two or more 
physical connections to the Exchange (generally because they generate 
relatively higher inbound message volume or need faster message 
throughput) thereby account for a disproportionate share of IEX's 
aggregate costs for providing physical connectivity. Therefore, IEX 
believes it is not unfairly discriminatory for such Members to pay a 
higher proportionate share of the physical connectivity fees by paying 
for each additional connection.
    Accordingly, the Exchange believes that the fee will be applied 
consistently with its specific purpose--to offset a portion of its 
costs with a limited potential return in excess of such costs if 
actuals differ from projections.
    The Exchange further believes that the proposed fees are 
reasonable, fair and equitable, and non-discriminatory because they 
will apply to all Connectivity Subscribers in the same manner and are 
not targeted at a specific type or category of market participant 
engaged in any particular trading strategy. All Members, Service 
Bureaus, Data Recipients, and Extranet Providers will pay the same 
``per unit'' rate for physical connectivity to the Exchange. Further, 
the physical connectivity fee is not connected to volume-based tiers or 
dependent on executing a minimum volume of orders on IEX. All 
Connectivity Subscribers will be subject to the same fee schedule, 
regardless of the volume sent to or executed on IEX. The fee also does 
not depend on any distinctions between Members, Service Bureaus, Data 
Recipients, and Extranet Providers. The fee will be assessed solely 
based on the number of physical connections a firm selects and not on 
any other distinction applied by IEX. While firms that send relatively 
more inbound messages to IEX may select two or more physical 
connections to the Exchange, thereby resulting in higher fees, that 
distinction is based on decisions made by each firm and the extent and 
nature of the firm's business on IEX rather than application of the fee 
by IEX. Members, Service Bureaus, Data Recipients, and Extranet 
Providers can determine how many physical connections they need to 
implement their trading or business strategies effectively.
    IEX also believes that it is reasonable, equitable, and not 
unfairly discriminatory to base its billing for physical connectivity 
on the number of physical connections assigned to Members, Service 
Bureaus, Data Recipients, and Extranet Providers as of the first day of 
each month. IEX believes that this approach is fair because Members, 
Service Bureaus, Data Recipients, and Extranet Providers will have a 
reasonable understanding and expectation of the cutoff date for 
determining whether the firm requires one or more physical connections 
to the Exchange.
    Furthermore, the Exchange believes that the proposed fee is 
consistent with Section 11A of the Exchange Act in that it is designed 
to facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low, cost-based fee will enable a broad 
range of Members, Service Bureaus, Data Recipients, and Extranet 
Providers to continue to physically connect to IEX, thereby 
facilitating the economically efficient execution of securities 
transactions on IEX, fair competition between and among such Members, 
Service Bureaus, Data Recipients, and Extranet Providers, and the 
practicability of Members that are brokers executing investors' orders 
on IEX when it is the best market.
    As discussed above, IEX believes the proposed fees are reasonable 
because they are equitable and not unfairly discriminatory, based on a 
thorough and transparent cost-based analysis as well as a comparison to 
similar fees charged by other exchanges, as detailed below. Moreover, 
the proposed fees would support IEX's ability to cover its costs (in 
whole or in part) to provide physical connectivity, with a limited 
potential return in excess of such costs if actuals differ from 
projections, and thereby invest in infrastructure, new products and 
other innovations, and competitively price transaction fees. These 
investments in the IEX's future growth are designed to enable IEX to 
attract additional business and build market share, with the benefit, 
inter alia, of attracting more displayed liquidity to the Exchange to 
the benefit of all market participants.
    Finally, IEX does not believe that physical connectivity fees are 
properly constrained by competitive market pressures. Nevertheless, the 
Exchange believes that a competitive analysis of its proposed fees, as 
discussed below, also demonstrates that they are equitable and not 
unfairly discriminatory.
Logical Connectivity Fees
    With respect to Order Entry Ports, IEX believes that its proposed 
fee is reasonable, fair and equitable, and not

[[Page 42540]]

unfairly discriminatory because it is designed to align fees with the 
costs of services provided, will apply equally to all Members that are 
assigned Order Entry Ports (either directly or through a Service 
Bureau), and will minimize barriers to entry by continuing to provide 
all Port Subscribers with five free Order Entry Ports. Because the 
first five Order Entry Ports are free, a significant majority of Port 
Subscribers will not be subject to any fee. Even for Port Subscribers 
that choose to maintain more than five Order Entry Ports, IEX believes 
that the cost-based fee of $250 is low enough that it will not operate 
to restrain any Port Subscriber's ability to maintain the number of 
Order Entry Ports that it determines are consistent with its business 
objectives. The small number of Members projected to be subject to the 
highest fees will still pay considerably less than competing exchanges 
charge. For example, the monthly cost per order entry port on Nasdaq, 
NYSE, and Cboe EDGA is $575, $550, and $550, respectively.\69\ IEX 
further notes that NYSE and Nasdaq both charge for other logical ports 
that IEX will continue to offer for free, such as those used for 
testing and disaster recovery purposes.\70\ Further, the number of 
assigned Order Entry Ports will continue to be based on decisions by 
each Port Subscriber, including the ability to reduce fees by 
discontinuing unused Order Entry Ports.
---------------------------------------------------------------------------

    \69\ See Nasdaq Price List--Trading Connectivity, Logical 
Connectivity, https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#logicalconnectivity; NYSE Price 
List as of February 12, 20204, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; and Cboe U.S. 
Equities Fee Schedule, EDGA Equities, available at https://www.cboe.com/us/equities/membership/fee_schedule/edga/.
    \70\ See Nasdaq Price List--Trading Connectivity, Logical 
Connectivity, https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#logicalconnectivity; NYSE Price 
List as of February 12, 20204, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf;
---------------------------------------------------------------------------

    The Exchange believes that providing five free Order Entry Ports is 
fair and equitable, and not unfairly discriminatory because it will 
enable all Members and Service Bureaus to access IEX on those ports 
free of charge, thereby encouraging order flow and liquidity from a 
diverse set of market participants, facilitating price discovery and 
the interaction of orders. IEX continues to believe that five Order 
Entry Ports is an appropriate number to provide for free because it 
aligns with the number of such ports currently maintained by a 
meaningful majority of Port Subscribers. Port Subscribers with 
relatively higher inbound message volume also request (and are 
assigned) more Order Entry Ports than other Port Subscribers, which in 
turn means they account for a disproportionate share of IEX's aggregate 
costs for providing Order Entry Ports. Therefore, IEX believes it is 
not unfairly discriminatory for the Port Subscribers with higher 
inbound message volume to pay a higher proportionate share of the Order 
Entry Port fees.
    Accordingly, the Exchange believes that the fee will be applied 
consistently with its specific purpose--to offset a portion its costs, 
with a limited potential return in excess of such costs if actuals 
differ from projections, encourage the efficient use of Order Entry 
Ports, and align fees with Port Subscribers' Order Entry Port and 
system usage.
    The Exchange further believes that the proposed fees are 
reasonable, fair and equitable, and non-discriminatory because they 
will apply to all Members in the same manner and are not targeted at a 
specific type or category of market participant engaged in any 
particular trading strategy. All Members (or Service Bureaus) will 
receive five free Order Entry Ports and pay the same $250 per Order 
Entry Port for each additional Order Entry Port. Each Order Entry Port 
is identical, providing logical connectivity to IEX on identical terms. 
While the proposed fee will result in a different effective ``per 
unit'' rate for different Members (or Service Bureaus) after factoring 
in the five free Order Entry Ports, the Exchange does not believe that 
this difference is material given the overall low fee of $250 per Order 
Entry Port. Because the first five Order Entry Ports are free of 
charge, each entity will have a ``per unit'' rate of less than $250. 
Further, the fee is not connected to volume-based tiers. All Members 
will be subject to the same fee schedule, regardless of the volume sent 
to or executed on IEX. The fee also does not depend on any distinctions 
between Members, customers, broker-dealers, or any other entity. The 
fee will be assessed solely based on the number of Order Entry Ports an 
entity selects and not on any other distinction applied by IEX. While 
entities that send relatively more inbound messages to IEX may select 
more Order Entry Ports, thereby resulting in higher fees, that 
distinction is based on decisions made by each Port Subscriber and the 
extent and nature of the Port Subscribers' business on IEX rather than 
application of the fee by IEX. Members (and their Service Bureaus) can 
determine how many Order Entry Ports they need to implement their 
trading strategies effectively. As proposed, IEX will continue to offer 
multiple Order Entry Ports at a low fee to enable all Port Subscribers 
to purchase as many Order Entry Ports as their business needs dictate 
in order to optimize throughput and manage latency across the Exchange.
    Notwithstanding that Port Subscribers with the highest number of 
Order Entry Ports will pay a greater percentage of the total projected 
fees than is represented by their Order Entry Port usage, IEX does not 
believe that the proposed fee is unfairly discriminatory. It is not 
possible to fully synchronize IEX's objective to provide five free 
Order Entry Ports to all Port Subscribers, thereby minimizing barriers 
to entry and incentivizing liquidity on the Exchange, with an approach 
that exactly aligns the projected per Port Subscriber fee with each 
Port Subscriber's number of requested Order Entry Ports. As proposed, 
IEX is providing a reasonable number of Order Entry Ports to each 
Member (or Service Bureau) without charge. Any variance between 
projected fees and Order Entry Port usage is attributable to objective 
differences among Members in terms of the number of Order Entry Ports 
they determine are appropriate based on their trading on IEX. Any 
difference in impact would be allocated to Port Subscribers with 
substantially higher trading volume.
    IEX also believes that it is reasonable, equitable, and not 
unfairly discriminatory to base its billing for Order Entry Ports on 
the number of Order Entry Ports assigned to each User as of the first 
day of each month. IEX believes that this approach is fair because 
Members (and Service Bureaus) will have a reasonable understanding and 
expectation of the cutoff date for determining whether a User has more 
than five assigned Order Entry Ports.
    Finally, the Exchange believes that the proposed fee is consistent 
with Section 11A of the Exchange Act in that it is designed to 
facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low, cost-based fee will enable a broad 
range of IEX Members to continue to connect to IEX, thereby 
facilitating the economically efficient execution of securities 
transactions on IEX, fair competition between and among such Members, 
and the practicability of Members that are brokers executing investors' 
orders on IEX when it is the best market.
    As discussed above, IEX believes the proposed fees are reasonable 
because they are equitable and not unfairly

[[Page 42541]]

discriminatory, based on a thorough and transparent cost-based 
analysis, as well as a comparison to similar fees charged by other 
exchanges, as detailed below. Moreover, the proposed fees would support 
IEX's ability to offset its costs (in whole or in part) to provide 
logical connectivity, with a limited potential return in excess of such 
costs if actuals differ from projections, and thereby invest in 
infrastructure, new products and other innovations, and competitively 
price transaction fees. These investments in the IEX's future growth 
are designed to enable IEX to attract additional business and build 
market share, with the benefit, inter alia, of attracting more 
displayed liquidity to the Exchange to the benefit of all market 
participants.
    As discussed above, IEX does not believe that logical connectivity 
fees are properly constrained by competitive market pressures. 
Nevertheless, the Exchange believes that an analysis of similar fees 
charged by competitor exchanges, as discussed below, also demonstrates 
that the proposed fees are equitable and not unfairly discriminatory.
The Proposed Fees Promote Competition by Offering a Lower Cost Solution
    The Exchange believes the competing exchanges' physical 
connectivity and port fees are useful examples of alternative 
approaches to providing and charging for physical and logical 
connectivity. To that end, the Exchange believes the proposed fees are 
reasonable, in addition to being cost-based, because the proposed fees 
are less than fees charged for similar physical connectivity and 
logical order entry port access provided by other exchanges with 
comparable market shares. These fees are designed to recoup a portion 
of its costs for providing physical and logical connectivity, with a 
limited potential return in excess of such costs if actuals differ from 
projections, thereby enabling it to invest in competitive 
infrastructure and other offerings and compete with other equities 
exchanges. The following table demonstrates that the Exchange's 
proposed fees would be significantly less than fees charged for similar 
physical and logical connectivity provided by other exchanges with 
similar market share. Each of the physical or logical connectivity fees 
in place at competing exchanges listed below were filed with the 
Commission for immediate effectiveness and remain in place today.

------------------------------------------------------------------------
                               Type of connection
          Exchange                   or port             Monthly fee
------------------------------------------------------------------------
IEX (market share of 1.94%    10G connection to     $4,000 per
 for the month of March        Primary Data Center.  connection (as
 2024) \e\.                                          proposed).
                              10G connection to     Included with 10G
                               Disaster Recovery     connection to
                               Data Center.          Primary Data Center
                                                     (as proposed).
                              Primary Data Center   1-5 ports: FREE 6
                               Logical Order Entry   ports or more: $250
                               Ports.                per port (as
                                                     proposed).
                              All other logical     FREE.
                               ports (including
                               Drop Copy ports).
MIAX Pearl Equities (market   1G connection to      $2,500 per
 share of 1.87% for the        primary/secondary     connection.\f\ \g\
 month of March 2024) \e\.     data center.         $8,000 per
                              10G connection to      connection.\f\
                               primary/secondary    $1,000 per
                               data center.          connection.\f\ \h\
                              1G connection to      $3,000 per
                               disaster recovery     connection.\f\
                               data center.         1-5 ports: FREE 6
                              1G [sic] connection    ports or more: $450
                               to disaster           per port.\f\
                               recovery data        FREE.\f\
                               center.
                              FIX and MEO Ports...
                              FXD Ports (i.e.,
                               Drop Copy Ports).
MEMX (market share of 2.53%   1G connection to      Not available.\i\
 for the month of March        primary data center. $6,000 per
 2024) \e\.                   10G connection to      connection.\i\
                               primary data center. $3,000 per
                              10G connection to      connection.\i\
                               disaster recovery    $450 per port.\i\
                               data center.         $450 per port.\i\
                              Order Entry Ports...
                              Drop Copy Ports.....
Cboe EDGA (market share of    1G connection to      $2,500 per
 1.78% for the month of        primary data center.  connection.\g\ \j\
 March 2024) \e\.             10G connection to     $8,500 per
                               primary data center.  connection.\j\
                              1G connection to      $2,000 per
                               disaster recovery     connection.\j\
                               data center.         $6,000 per
                              10G connection to      connection.\j\
                               disaster recovery    $550 per port.\j\
                               data center.         $650 per port.\j\
                              Order Entry Ports...
                              Purge Ports.........
------------------------------------------------------------------------
\e\ See ``U.S. Equities Market Volume Summary'', available at https://www.cboe.com/us/equities/market_share/.
\f\ See MIAX Pearl Equities Exchange Fee Schedule as of May 1, 2024,
  available at https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_05012024.pdf.
\g\ IEX notes that some equities exchanges also offer a 1G connection to
  their primary data center, but understands that only a small minority
  of market participants find a 1G connection to be adequate for trading
  and market data purposes.
\h\ MIAX Pearl waives the fee for a single 1G connection to the disaster
  recovery center for members required by MIAX Pearl to conduct disaster
  recovery data center testing. See https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Equities_Fee_Schedule_05012024.pdf.
\i\ See MEMX Connectivity Fee Schedule, available at https://info.memxtrading.com/connectivity-fees/.
\j\ See Cboe U.S. Equities Fee Schedule, EDGA Equities, available at
  https://www.cboe.com/us/equities/membership/fee_schedule/edga/.

    Moreover, IEX's proposed fees are substantially lower than the fees 
other exchanges that operate listing markets charge for the equivalent 
physical and logical connectivity. For example, NYSE charges $22,000 
per month for a 10G physical connection, plus an initial charge of 
$15,000; and charges $550 per order entry and drop copy ports.\71\ 
Nasdaq charges $10,550 per month for a 10G physical connection, plus an 
initial charge of $1,055 (and $15,825 per month for a 10G ``Ultra'' 
connection, plus an initial charge of $1,583); and charges $575 per 
order entry port, $550 per drop copy port, $100 per test ports, and $25 
per disaster recovery ports.\72\ By contrast, IEX, as proposed, will 
charge $4,000 for a 10G physical connection, offers up to five Order 
Entry Ports for free, and charges $250 per port for 6 or more ports.
---------------------------------------------------------------------------

    \71\ See NYSE Connectivity Fee Schedule as of April 3, 2024, 
available at https://www.nyse.com/publicdocs/Wireless_Connectivity_Fees_and_Charges.pdf. and NYSE Price List as 
of February 12, 20204, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf.
    \72\ See Nasdaq Price List--Trading Connectivity, Logical 
Connectivity, https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#logicalconnectivity.
---------------------------------------------------------------------------

    There is no regulatory requirement that any broker-dealer connect 
to and access any (or all of) the available equity exchanges. Market 
participants may choose to become a member of one or more (or no) 
equities exchanges based on the market participant's assessment of the 
business opportunity relative to the costs of the Exchange. In lieu of 
becoming a member at each exchange, a market participant may join one

[[Page 42542]]

exchange and elect to have its orders routed in the event that a better 
price is available on an away market. Nothing in the Order Protection 
Rule \73\ requires a broker-dealer to become a Member of--or establish 
connectivity to--the Exchange. All equities exchanges have rules in 
place to avoid trading through a better priced quotation on another 
exchange in violation of Order Protection Rule.\74\
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    \73\ See 17 CFR 242.611.
    \74\ See e.g., IEX Rule 11.230.
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    As noted earlier, IEX believes that as a general matter, physical 
and logical connectivity fees cannot be sufficiently justified based 
solely on unproven assumptions about competition, notwithstanding that 
a newer and/or smaller securities exchange, such as IEX, may be less 
able to set prices for its physical and logical connectivity free of 
constraint by significant competitive forces than may be the case for 
more established securities exchanges.\75\
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    \75\ And as noted earlier, IEX's proposed fees are significantly 
less than fees charged by its competitors.
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    In summary, for all of the foregoing reasons, the Exchange believes 
that the proposed fees are reasonable, equitably allocated, and not 
unfairly discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
Physical Connectivity Fees
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
fees are cost-based fees, which are designed to enable the Exchange to 
recoup applicable costs, with a limited potential return on its 
investment in excess of such costs if actuals differ from projections, 
as described in the Purpose and Statutory Basis sections. Competing 
equities exchanges are free to propose comparable fee structures 
subject to the SEC rule filing process. And as discussed above, market 
participants are not required to connect to all exchanges. There is no 
reason to believe that IEX's proposed price increase will adversely 
impact any other exchange's ability to compete. Further, as detailed 
above, the proposed fees are lower than similar fees charged by other 
exchanges. IEX believes that a comparison to comparable fees charged by 
competitor markets helps to ensure that regulatory oversight of 
comparable fees across exchanges is applied in a way that promotes fair 
and non-discriminatory intermarket competition. Accordingly, the 
Exchange does not believe its proposed fee changes impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    The Exchange also does not believe that the proposed fees will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. All Connectivity 
Subscribers will be charged the same amount for each physical 
connection to the Primary Data Center, with free physical connectivity 
to the Disaster Recovery Data Center and ITF. The proposed fees do not 
favor certain categories of Connectivity Subscribers in a manner that 
would impose an undue burden on competition. The Exchange does not 
believe that the proposed rule change would place certain Connectivity 
Subscribers at the Exchange at a relative advantage or disadvantage 
compared to other Connectivity Subscribers or affect the ability of 
such firms to compete. Connectivity Subscribers that utilize more 
physical connectivity services typically utilize the most bandwidth, 
and those are the firms that consume the most resources from the 
Exchange. Accordingly, the proposed fees for physical connectivity 
services do not favor certain categories of Connectivity Subscribers in 
a manner that would impose a burden on competition; rather, the 
allocation of the proposed physical connectivity fees reflects the 
Exchange resources consumed by the various Connectivity Subscribers and 
the costs to the Exchange of providing such physical connectivity 
services.
    Finally, as described in the Purpose section, the proposed fee 
change is designed to assist the Exchange in complying with its 
Regulation SCI compliance obligations to have levels of capacity 
adequate to maintain IEX's operational capability and promote the 
maintenance of fair and orderly markets, thereby promoting both 
intermarket and intramarket competition by enabling IEX to support a 
robust trading environment for its Members and compete with other 
equities venues.
Logical Connectivity Fees
    The Exchange does not believe that the proposed rule change with 
respect to Order Entry Port Fees will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed fees are cost-based fees, which are 
designed to enable the Exchange to recoup applicable costs, with a 
limited potential return on its investment in excess of such costs if 
actuals differ from projections, as described in the Purpose and 
Statutory Basis sections. Competing equities exchanges are free to 
propose comparable fee structures subject to the SEC rule filing 
process. And as discussed above, market participants are not 
regulatorily required to connect to all exchanges. There is no reason 
to believe that IEX's proposed price increase will adversely impact any 
other exchange's ability to compete. Further, as detailed above, the 
proposed fees are lower than similar fees charged by other exchanges. 
IEX believes that a comparison to comparable fees charged by competitor 
markets helps to ensure that regulatory oversight of comparable fees 
across exchanges is applied in a way that promotes fair and non-
discriminatory intermarket competition. Accordingly, the Exchange does 
not believe its proposed fee changes impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.
    The Exchange also does not believe that the proposed fees will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. IEX does not 
believe that the proposed increased Port Fees will impose any burden on 
intramarket competition that is not necessary or appropriate in 
furtherance of the purpose of the Act because all Members (and/or their 
Service Bureaus) will continue to be entitled to five free ports and 
subject to the same low, cost-based fee for additional ports. While 
different total fees would be assessed depending on the number of Order 
Entry Ports a Member (or Service Bureau) requests, these different fees 
are not based on the type of Member requesting the Order Entry Port(s) 
but on the number of such ports it requests, and each Port Subscriber 
can determine the number of such ports to request. Further, providing 
five free Order Entry Ports is designed to avoid creating barriers to 
entry for smaller Members, thereby promoting intramarket competition. 
In addition, IEX believes that even Members subject to relatively 
higher fees for more Order Entry Ports will still be subject to a 
relatively low aggregate fee (and significantly less than competing 
exchanges, as described above) and thus the proposed fee will not 
operate as a barrier to entry for such Members or impose a significant 
business cost

[[Page 42543]]

burden on such Members relative to their levels of business activity.
    The proposed fees do not favor certain categories of Connectivity 
Subscribers in a manner that would impose an undue burden on 
competition. The Exchange does not believe that the proposed rule 
change would place certain Connectivity Subscribers at the Exchange at 
a relative advantage or disadvantage compared to other Connectivity 
Subscribers or affect the ability of such firms to compete.
    Finally, as described in the Purpose section, the proposed fee 
change is designed to assist the Exchange in complying with its 
Regulation SCI compliance obligations to have levels of capacity 
adequate to maintain IEX's operational capability and promote the 
maintenance of fair and orderly markets, thereby promoting both 
intermarket and intramarket competition by enabling IEX to support a 
robust trading environment for its Members and compete with other 
equities venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) \76\ of the Act.
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    \76\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \77\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \77\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-IEX-2024-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-IEX-2024-08. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-IEX-2024-08 and should be 
submitted on or before June 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\78\
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    \78\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-10588 Filed 5-14-24; 8:45 am]
BILLING CODE 8011-01-P